Unfortunately, you have accidentally made a non-qualified withdrawal from your HSA.
So do this:
1. Tell TurboTax that you will withdraw the entire excess (of $2,155) before April 15th (since you already have).
2. TurboTax automatically adds the $2,155 to Other Income on line 21 on Schedule 1 (good).
3. You need to scour your house and records for any qualified medical expenses that you paid for with after tax dollars AFTER the day you created the HSA. This amount becomes your "reimbursement for qualified medical expenses". (BE SURE TO LIST THE BILLS ON PAPER AND ADD THAT THEY WERE REIMBURSED BY THIS DISTRIBUTION AND SAVE IT IN YOUR TAX FILE/RECORDS).
4. You need to subtract the $2,155 from the $4,125 ($1,970).
5. Then you need to subtract any previously unreimbursed qualified medical expenses (line #3) from the $1,970.
6. The remainder on line #5 is your unqualified distribution.
7. For your 2019 tax return in early 2020, you will receive a 1099-SA for the earnings on the excess while they were in the HSA. Enter this as is, and the earnings will be added to your 2019 income (as they should be). Note that if the $2,155 is in box 1, it will just be ignored if the distribution code is '2' (as it should be).
8. Then you will have to make up a fake 1099-SA. This fake 1099-SA will have the same information as the real 1099-SA, with the following changes: (1) the distribution code should be '1', (2) the entry in box 1 should be your unqualified distribution (line #6), and (2) box 2 should be blank.
9. After you enter the fake 1099-SA, you will be asked if any of the distribution was for qualified medical expenses. Answer "no" (as in none of it). This will cause the unqualified distribution to be added to your 2019 income AND an additional 20% penalty on the unqualified distribution.
This is why it is important that you diligently search for medical bills that you paid with after-tax dollars AFTER the date you started the HSA (step #3). The more bills that you can apply to this $1,970, the less you will be penalized on.
Now, all of this won't exactly match the records that the IRS and the HSA custodian have, but that's OK. You have declared the right things to be income and have been penalized the right amount. Keep those records from step #3 because if you are ever audited, you will need them to explain what happened.
